Yesterday, I learned that there are two crazy people in the world, Washington Nationals GM Mike Rizzo and me. Rizzo signed Jayson Werth to a seven-year, $126 million contract, and I stated that Werth was projected to be worth $127 million in terms of revenue generation over this time period. I understand why this contract is universally hated. This is a huge contract, a long contract that takes Werth into his late-30s, and while most fans understand that Werth is good he’s not considered a superstar.

How will Werth age? A lot of people feel that players age drastically, and that at 38 Werth will have aged out of the league. That is possible, but my research indicates that aging is rather flat. Good players tend to stay good, bad players tend to stay bad. When players get to their late-30s, it’s difficult to study aging, but I use my aging function to diminish his performance according to the past history of major-league players, so this value roughly accounts for that.

I also assume that league revenue will grow at nine percent per year. That may seem like an aggressive assumption—and revenue cannot continue to grow at that rate forever, or MLB will take over the US economy—but it is consistent with historical revenue growth. If you’d like to scale the growth rate back, I won’t argue with you. But, I can see where the Nationals might get their revenue projection.

And what about the argument that the Nats would have been better of by signing Adam Dunn? The Chicago White Sox signed away Dunn with a four-year, $56 million deal. I estimate that as a designated hitter, Dunn is worth $54 million. But, if he has to play the NL, where his defensive liabilities can’t be hidden on the bench, he’s worth only $49 million. The Nationals might have liked to have kept Dunn, but an AL team was going to value him more. Furthermore, Werth is a better player than Dunn: in 2010, I estimate that Werth’s play was worth about $5 million more than Dunn’s.

And what about the future? A few years down the road the Nationals may not just be a losing team, but a loser with an albatross contract. I think the Nationals signed this contract looking forward, rather than trying to make a splash now. The Nats may have needed some good press in DC, but Werth isn’t quite the household name to make that splash. The Nats have a core of good young players, such Ryan Zimmerman, Stephen Strasburg, and Bryce Harper. In a few years, when the team wants to add another piece to push them into the playoffs (and with players will be worth more) Werth could be worth more than his contract. Now, if the plan doesn’t work out, the Nats may end up having to cut their losses and deal away some of their good players. When that time comes, they can minimize some of their losses by selling away overpaid players for less—the loss isn’t the full salary of the contract. Yes, a loss is a loss, but risking a loss to make money is something that businesses must do every day.

I’m not sure I would have recommended this deal to Rizzo if asked, but I can understand why this deal was made. It’s aggressive, but reasonable.

Tuesday, December 7th, 2010,
by JC and is filed under "General, Hot Stove Economics ".
Both comments and pings are currently closed.

||

13 Responses “Defending the Jayson Werth Deal”

The deal is entirely about restoring the Nats credibility in Washington. People aren’t going to the games. They are perceived here as playing in a taxpayer-built park and putting a rancid product on the field. Also, given the Nats situation, the only way to get a top free agent to come was to, arguably, overpay. It is also about placating the face of the franchise, Ryan Zimmerman, who was pissed about losing Dunn. Who knows how it will work out, but the Nats had to do something, just as the Braves had to overpay to get Derek Lowe.

What are the odds of injury though? There are a few different kinds of injury that Werth could experience that may or may not be protected by insurance. If he has a bad year or two that’s injury driven but is generally productive, like say Jim Thome, that’s pretty easy to account for. On the other hand Frank Thomas was still a productive hitter but basically lost 3 years between age 32 and 38 which would be really damaging to the Natinals. And he could have an injury that removes part of his value, like a shoulder injury that could cost him a throwing arm that saves 4 runs a year.

I do not separate aging from attrition in my study. Attrition relates to why the mode method for estimating peak age is likely biased. If you are curious about the study, the study is published, I have written about it elsewhere, and I explain my method in my book.

We can argue whether or not 7 years $126m is the appropriate value for Werth. The reason that I question the deal is I don’t think that the highest value the organization could have gotten out of this spent $18m/year is/was on Werth (a player who is peaking now). The Nats aren’t winning next year. I think there are other places where this money could have been better spent (investing in the future i.e. on more draftees w/ signability issues and/or international free agents). The Nats may now win 75 games next year instead of 73, but at a cost of having been able to spend that money on more potential stars that will pay dividends the same time Harper is ready. I think that the Werth signing prolongs any substantial longer-term improvement for the Nats.

“Yes, some players do fall off a cliff at the end of their careers — sometimes in their early 30s — but such occurrences are unlikely to be the natural product of aging. An abrupt performance decline is normally the product of a major injury or another significant effect. General managers who sign a player in their 30s should expect a decline; but, the decline is so gradual that an excellent player will continue to be a good player for many years beyond his peak.”

To the poster saying that the Nats would be better off spending that $18M/year on the amateur draft, makes a good point. But the Nats owner is worth $2-3B (Billion) according to Forbes, and can afford to spend $18M on Werrth, and another $18M on the farm. Pretty sure that Ted lerner is the richest owner in the MLB.

I expect that given the Nats track record in signing Strasburg, Harper, Solis and AJ Cole in the past 2 years, that they are committed to keeping the farm fully populated.

For commentors that use the term “Natinals” – I’m sure I’m not the only one who stops reading at that point.

I don’t know if this is going to turn out to be a good contract or not. But it was a necessary contract. At some point, the Nats need to start winning and putting those pieces together. And Werth is one of those pieces.

A bunch of people have been calling them the Natinals (sic) b/c some players on the team have on multiple occasions last year worn jersies that didn’t have the ‘O’ in them. If it happened only once, then people could understand. But it happened a few times. Google the term Natinals and look at the images. If the team sends its representatives out there w/ Natinals written on their uniforms, then one could argue that that’s what the organization wants to be called.

MarkW:
It appears that there isn’t an exact 1:1 relationship between an owner’s wealth and the willingness to have a high payroll. An example: Pohlad in Minnesota is crazy rich, but until last year they consistently had a payroll in the bottom half of the league. So I wouldn’t fully dismiss my point that the $126MM going to Werth perhaps might have been the best use of that money. Even if adding Werth adds 3 wins to the team, they’re still a long ways off from contending.

Yes, we can’t fully judge this Werth deal in a vacuum i.e. just by itself. But I think it’s fair to look at the organization’s (putrid) performance record over the past few years and I think one shouldn’t be surprised if the team still flounders in the years ahead.

A mistake like that turning up on two jerseys for three innings once is NOT the same as happening on “multiple occasions”. Check your facts before trying to defend someone else’s sub-par sense of humor.

Majestic also took responsibility for the mistake (see the link in the name), so perhaps the argument should be that they’re the ones who prefer the name?

That said, I do think this deal has merits beyond just performance on the field. The chances of this deal cratering towards the end are pretty high, and perhaps the marginal increase in wins in the short term won’t be fully justified by the price tag. But, like Mark S. said in the first comment, this also has to be viewed as at least a token effort by the club to show its fans (as well as current and future players) that it’s willing to spend money to get top-flight free agents. Like the saying goes, you have to spend money to … be able to spend more money in the future?

After nearly five cellar-dwelling seasons of rebuilding, it may take more than a 69-win season to keep even the most hardy fans interested in the team….

Let’s put it this way. People aren’t going to the games. If the Nats announce, well, we are going to take this money and invest it in the farm system, even fewer people will go to the games. Sometimes, you have to make a short-term move to enable long-term moves. Intellectually, you can say it doesn’t matter if the Nats win 73 or 75 or 80 games but to people deciding whether to spend their money, it makes a big difference if the team looks like they are trying, especially since they are playing in a ballpark given to them by the city.

Trackbacks/Pingbacks

[…] J.C. Bradbury finds the Jayson Werth deal reasonable: Yesterday, I learned that there are two crazy people in the world, Washington Nationals GM Mike Rizzo and me. Rizzo signed Jayson Werth to a seven-year, $126 million contract, and I stated that Werth was projected to be worth $127 million in terms of revenue generation over this time period. I understand why this contract is universally hated. This is a huge contract, a long contract that takes Werth into his late-30s, and while most fans understand that Werth is good he’s not considered a superstar. […]